Andrew Hebden is Assistant Editor (Business) of The Journal »
Matt James runs fingerprint-recognition technology firm UKB Security »
James Mills is a web developer in the North East of England and founder of Refresh Teesside »
Phil Renton is managing director of North East IT empire Croft »
Andrew Mernin is the Digital Journalist for nebusiness »
Matthew Rippon is an IP lawyer for BHP Law »
Formerly editor of a national business lifestyle magazine, Jez Davison is a business writer for the Evening Gazette in Teesside »
Ian Brown, Northumberland farmer and businessman writes about the agricultural industry »
Accessibilty Champion Steve Wilkinson on the importance of inclusion »
Shared Interest Staff at Newcastle's fair trade firm blog on their latest international missions »
PR man David Honeywell on raising your profile in the right places »
Marion Bernard is from NorthStar Equity Investors »
Paul Williamson is from Deloitte »REMEMBER, remember, the seventh of November? That was the date on which the Bank of England announced a 1.5% interest rate cut designed to put a rocket up a burnt-out economy.
The unexpected move brought the base rate to 3% - the lowest for 50 years - but whether it puts the sparkle back into business depends on banks' willingness to lend more to homeowners and businesses at cheaper rates.
This, in theory, should stimulate the economy and help slow the worst decline in manufacturing output in almost 30 years.
However, the clamour for banks to pass on the rate cut in full has highlighted a paradox, which has them pinned uncomfortably between a rock and a hard place.
How can they lend more when the Government is encouraging them to bolster their cash reserves to ensure they don't require state aid in future?
The Chancellor has always been clear that the £37bn part-nationalisation of Royal Bank of Scotland, HBOS and Lloyds TSB was a temporary measure, and that private investment would be necessary to secure their long-term future - as indeed was his argument for our own Northern Rock.
Whatever they do, banks could be criticised for lending too little or not keeping their financial house in order.
They are arguing, with some justification, that they can't pass on interest rate cuts in full because the Libor - the rate at which banks lend to each other - remains around 1.5% higher than the base rate. This means that the cost of securing the loan could end up being more expensive than the returns generated from lending it.
Business should not expect any charity from the banks and the Government may be forced into more drastic action, such as the temporary reduction of VAT or, for small businesses, a freeze on the increase in corporation tax (due to rise by 1% to 22% in April 2009).
This would be a far more pragmatic approach than offering sector-specific, state-backed handouts for troubled car manufacturers and builders. One thing's for certain, there will be plenty more fireworks before this recession has fizzled out.
- Post to:
del.icio.us
Digg
Newsvine
Nowpublic
Reddit
« Previous | Home | Next »